There are varying types of market structures in industries. The type of market structure of a company in a particular industry influences the way the company conducts business and how pricing strategies are determined. An effective pricing strategy is essential to maximize profits for the organization.

Definition of Monopoly

By definition, a monopoly means there is only one seller in a market for a particular product or service. Barriers exist that prevent other entrants into the market. The cost of producing goods may be too great for other companies to make a profit. Therefore, one seller controls the market. The company controls the supply of the product and has elasticity in determining the prices charged for goods or services. There are two types of monopolies: efficiency monopolies and legal monopolies. Efficiency monopolies exist when a company has developed new technology or a way to keep production costs low enough to undercut any competitors. An example would be the National Football League. Legal monopolies exist when a company is subsidized by the government and effectively takes over the market. They are protected legally from competition. An example of a legal monopoly would be a national or state lottery.

Monopolistic Pricing Strategies

The goal of a monopoly in developing a pricing strategy is to maximize profits. The market price is determined by demand for goods or services. The monopoly wants to set the highest price possible and still be able to sell all goods manufactured. A monopoly must determine the correct level of output to maximize profits. A monopoly has an advantage over other market structures in determining prices in that consumers cannot easily exchange their product for a comparable one from a local provider. For example, there is not a comparable substitute for electricity.

Monopolies and Antitrust Laws

There are federal regulations in place to regulate monopolistic behaviors. Certain mergers and acquisitions are prohibited if they are completed in an effort to monopolize trade or commerce in an industry, preventing competition. Two such laws are the Federal Trade Commission Act of 1914 and the Sherman Act of 1890. The term "trust" refers to large corporations that attempt to monopolize markets. This is where the term "antitrust" originated.

Other Types of Market Structures

Other types of market structures include perfect competition, monopolistic competition and an oligopoly. A perfect competition market is characterized by multiple producers of a single, unique good or service. An example of perfect competition would be forest products. Monopolistic competition happens when there are many competitors for services or goods that are slightly differentiated. One example of monopolistic competition would be fast food. An oligopoly has few producers of a product or service that are only slightly differentiated, such as computers, cell phones or cigarettes.

About the Author

Janet Hunt has worked in the insurance industry for more than 15 years. Now serving in online marketing, she also has expertise in business and finance topics. Hunt received her Bachelor of Business Administration from the University of Phoenix. Hunt has also worked as a food services manager for a high school cafeteria and received her school nutrition certification in 2002.